The promise of an open banking model that increases inclusion, competition and innovation in the financial sector has yet to become tangible, says Espinosa. Mexico’s fifth biggest bank is ready to adapt to the technological aspects of the new system but says what’s lacking are attractive business models that encourage customers to let the financial ecosystem access their data.
“I haven’t seen the value of open banking become tangible for users—a situation where it has really exploded and has made a difference in user migration between entities or between financial entities and fintech,” Espinosa tells iupana.
In 2018, Mexico became the first country in the region to develop regulation around the sharing of financial data sharing as part of its fintech law and present a model for open finance. But the financial regulator has yet to publish secondary provisions to regulate how the law is applied and the country is now trailing others in the region such as Brazil in terms of implementation, not to mention regions such as Europe, where the protocol has been advancing for some time.
“Unlike Pix or CoDi, I still don't see [open banking] as a relevant success story,” says Espinosa.
“Payments have been relevant and shown that they can reduce the use of cash, increase the use of electronic payments of all kinds from person to person, with QR codes, with payment APIs. There you can see a little more tangibility, but not necessarily in the consumption and exposure of data”, he says.
According to a draft of the regulation published by local media in October, banks will be obligated to share the customer data once clients have given their authorization. The new rules are also expected to accelerate the growth of big tech in the country, as the firms take advantage of financial portability to attract clients, the reports said.
What's ahead for digital banking in LatAm this year? We talk about it with experts live on Tuesday, January 25th—and you're invited. Reserve your ticket here.
Open banking security
Another challenge that open banking may experience in Mexico will be the "dichotomy" of handing over data to third parties in an environment where warnings of digital fraud are pervasive.
Those concerns are not misplaced. Mexico ranks second among Latin American countries with the most cyber attacks, according to the country's Secretariat of Citizen Security.
As a result, the technological push also needs to focus on consent, management, compliance and data protection in order to encourage greater adoption. “There’s important amount of communication work to be done by financial institutions, unions and all of us who participate in the ecosystem in order to give users transparency and assurance about what they can do, what their responsibility is but also what the advantages are,” he said.
Once the secondary rules on opening transactional data are published, the bank will also face the challenge of protecting its data from other financial firms.
“Competition is going to be aggressive but at the same time defensive. The more clients and data you have, the more there is to expose and for others to consume” said Espinosa.
You might also like: Open banking in Mexico: Citibanamex focuses on product partnerships
HSBC’s open banking strategy for Mexico
Having access to user information is an advantage for financial institutions seeking to develop differentiated value propositions and acquire new customers in what will be a highly competitive environment.
HSBC’s approach will be to draw on the technological stock that it has used in other countries where the open banking model has already been implemented—such as the United Kingdom and Hong Kong—and adapt it to the Mexican market.
“Unlike smaller entities, for whom the investment for open banking is very expensive and they prefer to use an enabler, such as hubs and APIs, we prefer to do it [ourselves] because we have the scale to reuse what we have already done: the infrastructure and the central architecture” Espinosa says.
So despite the regulatory bottleneck, the bank is preparing to implement its technology and develop products for the next stages.
And HSBC expects to see opportunities for acquiring new customers, improving and complementing credit risk analysis, and improving all service channels—especially digital.
"Once we have the use cases of how to use the information, how to clean it, how to present it, how to connect it to a business case, that's when there can be collaboration with a fintech to help you improve.”
“The day that there are payment APIs—payment initiation, for example—there can also be collaboration because these payment initiations are going to take place in electronic stores. That’s another type of company with which we’ll surely explore collaborating,” he says.
Espinosa ruled out the possibility, for now at least, of HSBC adopting a Banking as a Service (BaaS) model as part of its open and integrated finance strategy for Mexico, which is something it has explored and tested in other regions for certain niches and services.
“BaaS will be a much more natural model for banks that aren't looking to scale and grow customer-facing and be the one managing the customer relationship. However, if your goal is to acquire more customers and manage the relationship and bonding, the BaaS model is not the main strategy”, he says.